TaxPersonal TaxView from the House – Malcolm Bruce

View from the House - Malcolm Bruce

According to most commentators, the UK economy is heading for a relatively soft landing; although if you are in manufacturing, oil or farming, it certainly won’t feel like that.

A relatively neutral budget is expected, with some gimmicks for promoting improved productivity.

The trouble is that the chancellor, who in opposition railed against tax loopholes, is creating new ones and, at the same time, making the tax system more complicated. Measures like the working families tax credit will transfer #900m currently paid to women in family credit to their men’s pay packets.

The chancellor’s bid for headlines – with his much-trailed ten pence starting tax rate – could look less attractive than it once did. Nevertheless, he may introduce, or at least set out, the timetable for it.

The case for cutting taxes for the lower paid is overwhelming. It is absurd that people can pay tax and qualify for benefit. But the best way to boost take-home pay of the lower paid is not to add another complication to the tax system, but simply raise the level at which people start paying tax.

Successful people have every right to enjoy their higher earnings. Nevertheless, there is little dispute that 20 people earning #10,000 a year will spend more of their net income on home-produced goods and services than one person earning #200,000.

That is part of the Liberal Democrats’ case for a 50% tax rate on earnings above #100,000 a year. We propose building on that, however, by simplifying the allowances that complicate the tax system and, over time, concentrating the yield of pollution taxes on raising the threshold towards #10,000 a year.

On current earnings, this would take ten million people out of tax altogether. The dynamic of that would be to reduce poverty, give a boost to small businesses and expand the creation of jobs.

So here is a paradox the government should consider. Using the tax system for redistribution doesn’t just promote social justice, it also brings economic benefits to the middle classes.

Malcolm Bruce is Liberal Democrat MP for Gordon and the party’s spokesman for Treasury affairs.

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